PMI signals robust growth in August

U.S. private sector firms signalled a strong upturn in business activity in August, with both manufacturers and service providers registering expansions. Notably, it marked the first rise in service sector activity since the start of the year, while goods manufacturers recorded the fastest increase in production since January 2019.

Adjusted for seasonal factors, the IHS Markit Flash U.S. Composite PMI Output Index posted 54.7 in August, up from 50.3 at the start of the third quarter and signalled a strong increase in output. Moreover, it marked the sharpest upturn in private sector business activity since February 2019.

The composite index is based on original survey data from IHS Markit’s PMI surveys of both services and manufacturing. August data continued to indicate a recovery in private sector business conditions following the coronavirus disease 2019 (COVID-19) induced downturn.

Driving the overall upturn in output was stronger client demand. Total new business rose for the first time since February and at a solid rate. Manufacturing firms registered a steeper expansion in new order inflows than in July, while service providers signalled a renewed increase in sales. Companies commonly stated that new business growth stemmed from increased marketing efforts and the resumption of client operations. The reopening of economies worldwide also helped to boost new export orders, with foreign sales expanding at the sharpest pace since September 2014.

Meanwhile, increased pressure on capacity and an associated upturn in outstanding business led to a further expansion of workforce numbers across private sector firms in August. The rate of job creation accelerated among service providers, with manufacturers indicating the first rise in staff numbers since February.

On the price front, the rate of input price inflation quickened in August, as firms suggested higher raw material costs had driven the steep increase in operating expenses. Although manufacturers raised their selling prices at a faster pace, the rate of charge inflation among service providers eased amid reports of greater competitive pressures.

Businesses remained optimistic towards the 12-month outlook for output, with the degree of confidence strong overall. That said, positive sentiment dipped slightly from July’s recent high amid concerns surrounding the ongoing COVID-19 pandemic.
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IHS Markit Flash U.S. Manufacturing PMI™
Manufacturers signalled a solid improvement in operating conditions midway through the third quarter, as highlighted by the IHS Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™)1 posting at 53.6 in August, up from 50.9 in July. The overall rate of improvement was the fastest since January 2019.

The upturn was driven by quicker expansions in output and new orders. Many goods producers stated that the resumption of business operations and the reopening of clients had helped to boost sales, with some also noting larger orders being placed by customers. Firms also recorded the first rise in foreign client demand since December 2019.

For the first time since February, manufacturers registered a rise in the level of work-in-hand (but not yet completed) in August. As a result, firms indicated a renewed uptick in employment.

Meanwhile, the rate of input cost inflation accelerated notably in August to the fastest since January 2019. Manufacturers partially passed-on some of their costs to their clients through a solid rise in selling prices.

Finally, business confidence among manufacturing firms picked up in August amid hopes that client demand will continue to increase as economies start to reopen.